Lending Hope to Car Buyers, Auto Industry

The cars are there and now, so are the loans -- but consumers may not know it yet. That's where people like Jim Mays come in.

Mays is the sales manager at a Chapman Chevy dealership in Phoenix. Shortly after word got out that General Motors was rolling out offers unseen in months -- like zero percent financing on certain models -- Mays sent an e-mail blast to up to 20,000 customers announcing the new deals.

"Any time you've got zero percent [interest rate], that attracts a lot of attention in the marketplace," he said. "That's a good thing."

Calls from interested consumers have started coming in and "they're excited," Mays said.

The following day, GMAC announced that it would lower the minimum credit score required for its loan to 621.

In October, pressed by the credit crunch, GMAC raised the minimum to 700, a target that excluded many would-be buyers. Now, GMAC "will continue to employ responsible credit standards, but will be able to relax the constraints we put in place a few months ago," GMAC president Bill Muir said in a press statement released by the company earlier this week.

GM, meanwhile, has announced a raft of new financing deals through GMAC to encourage customers "to get back into the game," including offers ranging from zero to 5.9 percent financing on more than three dozen models.

So will all the new loan access spur a dramatic recovery of GM's sales? Analysts say, no, not exactly -- but it's a start.

In recent months, the limited financing available through GMAC left GM "fighting a duel with one arm tied behind [its] back," said Brian Bethune, the chief U.S. financial economist at IHS Global Insight in Lexington, Mass.

"The access to financing is a key customer buying criteria," he said. "It should produce improved sales relative to where they would have been without it."

"Credit is the grease of the auto industry," said Jack Nerad, a market analyst at Kelley Blue Book. "Without credit and without pretty easy credit, the auto industry grinds to a halt, and that's exactly what we've seen over the last three months or so."

If the new financing deals spark more interest in GM vehicles, it could also improve the fortunes of the other automakers by "getting people in the shopping mood," Nerad said.

"What the industry needs is for people to start shopping again," he said. "It'll raise all boats a little bit."

Industry supporters like Cannon praise GMAC, in particular, for expanding its lending operations so soon after receiving TARP funding. Cannon said he hoped U.S. banks that have received TARP funds would follow GMAC's lead. Banks have been roundly criticized for failing to make more new loans after receiving TARP moneys.

But Bethune cautioned against comparing GMAC with other banks. GMAC, he said, reaps significant benefits from its special relationship with GM.